Surface transportation, delivery, and logistics giant J.B. Hunt Transport Services (NASDAQ:JBHT) posted rather tepid results in the first quarter of 2019. While the company garnered a moderate year-over-year revenue increase, profits were nearly flat against the prior-year period.
Moreover, management expressed some uncertainty over business conditions going forward during the company's earnings conference call on April 16. Below, let's review the quarter, as well as management's perspective on J.B. Hunt's near-term outlook. Note that all comparative numbers in this article are presented against the prior-year quarter.
J.B. Hunt results: The raw numbers
|Metric||Q1 2019||Q1 2018||Change (YOY)|
|Revenue||$2.09 billion||$1.95 billion||7.2%|
|Net income||$119.6 million||$118.1 million||1.3%|
|Diluted earnings per share||$1.09||$1.07||1.9%|
What happened with J.B. Hunt this quarter?
- Intermodal segment revenue increased by 2%, to $1.09 billion, though volume decreased by 7%, as rail lane closures were exacerbated by winter storms in the Midwest, particularly in Chicago.
- Dedicated contract-services revenue jumped 22%, to $602 million, due to customer rate increases, a higher volume of final mile services (FMS), and an expanded fleet versus the prior year.
- The integrated capacity-solutions segment (i.e., traditional freight brokerage and third-party logistics (3PL) operations) booked a modest 2% revenue advance, to $301 million. Volumes increased by 15%, but customer mix and weak spot (market) pricing compressed average revenue per load.
- Trucking revenue rose 10%, to $102 million, even as volume was crimped due to extreme weather in the midwest.
- Revenue generated through the company's "Marketplace for J.B. Hunt 360" jumped to $186 million, against $96 million in the first quarter of 2018.
- Operating margin dipped 70 basis points, to 8%. Total operating profit of $167.8 million was essentially flat against the comparable quarter's $168.8 million in operating profit.
- Management cited several reasons for the decreased operating profitability, including increased rail-transportation costs, the detrimental effects of winter weather on network fluidity in the Midwest, higher equipment and maintenance costs, and rising driver recruitment and wage costs.
Looking forward: Management's perspective
In my earnings preview, I discussed the importance of intermodal revenue to J.B. Hunt's overall prospects. The intermodal segment comprises more than half the company's total top line and therefore greatly impacts both net earnings and investor sentiment. During the company's earnings conference call, CFO David Mee discussed the quarter's results, as well as the near-term outlook for this important revenue stream:
We expected [intermodal volume] to be down from a recently strong first quarter 2018 due [to] the expected and planned rail closings and train reroutings and from our sequential volume trends coming off a very strong pricing season in 2018.
The service disruptions from weather issues starting in late January and progressing through late February actually caused some freight to divert back to the highway in addition to loads being outright cancelled.
When the service began to improve, we did not see a snapback in customer demand in March which was our biggest surprise and frankly our miss to our expectations. While it is way too early to make a trend call for even second quarter 2019 or for the rest of the year, we are still waiting for customer demand to accelerate.
Intermodal traffic industrywide was also impacted by late March floods in the Midwest, so it may simply be a matter of weeks before customer demand returns to normal levels. Nonetheless, curbed intermodal activity on J.B. Hunt's books has reduced the company's momentum for the time being.
Shares have slumped roughly 8% since the April 16 earnings release, and investors may remain cautious, at least until other 3PL firms report in the current earnings season and provide more data on intermodal volume trends.